Providing for the marketing of grain by licensed warehouse operators and grain dealers, including by providing for indemnity fees and the indemnification of grain depositors and sellers for losses following the cessation of a license or bankruptcy, and including effective date provisions

The seller and the grain dealer, or the depositor and the warehouse operator, are the respective parties to a legal transaction, evidenced by a sales contract entered into by the seller and grain dealer, or a document of title in the form of a receipt such as a warehouse receipt or scale weight ticket issued by a warehouse operator to a depositor. The department of agriculture and land stewardship (DALS) regulates grain dealers (Code chapter 203) and warehouse operators (Code chapter 203C). DALS and the Iowa grain indemnity fund board (board) indemnifies sellers and depositors for losses incurred by the management of grain by grain marketers when performing legal obligations arising under the sale or deposit of the grain (Code chapter 203D). The indemnification is made as a payment from the grain depositors and sellers indemnity fund (fund). The fund is comprised of fees established by the board and contributed to DALS by grain marketers. The payment is a percentage of the dollar value loss incurred by the seller or a depositor based on the contract price or the market price offered for the same quantity and quality of grain. BACKGROUND —— LICENSURE REQUIREMENTS —— GENERAL. DALS regulates grain marketers by licensure either as a grain dealer or warehouse operator (licensee).1).1).16). DALS must issue a class or class license to an applicant based on the applicant’s business size.3). In addition, the grain dealer must maintain a net worth of at least $75,000, or alternatively maintain a deficiency bond or an irrevocable letter of credit in the amount of $2,000 for each $1,000 of net worth deficiency. However, the class grain dealer’s net worth cannot be less than $37,500. The grain dealer must also maintain current assets equal to at least 100 percent of current liabilities or provide a bond based on the deficiency to meet that minimum requirement. The grain dealer must annually submit to DALS a financial statement accompanied by an unqualified opinion based upon an audit performed by a certified public accountant (CPA) licensed in this state. However, rather than submitting an unqualified opinion, the grain dealer may elect to submit a financial statement that is accompanied by the report of a CPA licensed in this state that is based upon a review in lieu of an audit. The requirements for a class license are similar to those of a class license except the grain dealer must maintain a net worth of at least $37,500 or maintain a deficiency bond or an irrevocable letter of credit for $2,000 for each $1,000 of net worth deficiency. A class licensee must maintain a minimum net worth of $17,500. BACKGROUND —— SPECIAL REQUIREMENTS FOR GRAIN DEALERS AND SELLERS ENTERING INTO CREDIT-SALE CONTRACTS. The parties under a sales contract must each perform their respective obligations. The buyer must pay, or tender payment of, the sales price for a purchased good to the seller and the seller must deliver (transfer possession and title), or tender delivery of, the purchased good to the buyer, all according to the sales contract’s terms. Under Code chapter 203, the sales price is more commonly referred to as the purchase price.8). Delivery occurs when title to and possession of the grain is transferred to the grain dealer or another person in accordance with the contract terms. Otherwise, a transaction in which a grain dealer pays the seller for the purchased grain more than days after the grain’s delivery is considered a credit-sale contract and subject to special requirements.3).15). The grain dealer must maintain cents of net worth for each outstanding bushel of grain purchased under credit-sale contract or may maintain a deficiency bond or an irrevocable letter of credit or $2,000 for each $1,000 of deficiency. The grain dealer must also meet at least one of two conditions. The grain dealer’s last financial statement must be accompanied by an unqualified opinion based upon an audit performed by a CPA licensed in this state or the grain dealer must file a bond with DALS in the amount of $100,000 payable to DALS for use in indemnifying a seller for a loss resulting from a breach of a credit-sale contract. Finally, the seller must sign a form presented by a grain dealer acknowledging that the seller knows that a loss arising from a credit-sale contract is not indemnified by the fund. BILL —— SPECIAL REQUIREMENTS FOR GRAIN DEALERS AND SELLERS ENTERING INTO CREDIT-SALE CONTRACTS.1). Under a deferred-payment contract, the licensed grain dealer and seller have agreed to the purchase price for grain but payment is delayed more than days from the date of delivery regardless of whether delivery has or has not yet occurred. For example, a seller may elect to deliver (transfer possession and title) grain on December and receive payment after January to claim income in the subsequent tax year. Under a deferred-pricing contract, delivery occurs but the sales/purchase price has not been agreed to by the licensed grain dealer and the seller. The grain’s sales/purchase price paid to the seller may depend upon a speculative decision by the seller to sell the grain at a future market price with the expectation of increasing a profit or decreasing a loss. The bill provides that a seller still cannot claim a dollar value of a loss for indemnification from the fund arising from a credit-sale contract classified as a deferred-payment contract but that a seller may claim a limited dollar value loss for indemnification arising from a deferred-pricing contract. BACKGROUND —— FUND —— INDEMNITY FEES.33), each licensee may be required to remit either one or two special fees (indemnity fees) collected by DALS for deposit in the fund, referred to as a participation fee and per-bushel fee.014 multiplied by all bushels of purchased grain during the grain dealer’s prior fiscal year with a minimum of $50 and no maximum limit.25 multiplied by all bushels of purchased grain for the grain dealer’s assessment year with no minimum or maximum limit.1).1).5).5).5). The assessment year is further divided into four three-month assessment quarters. A grain dealer or warehouse operator may remit a participation fee annually (with an application for an initial license or the renewal of a license) or for the renewal of a license on a quarterly basis.3A). BACKGROUND —— BOARD REVIEW OF FUND. The board must annually review the debits of and credits to the fund and by May determine whether to impose the indemnity fees, make adjustments to the existing indemnity fees, or waive the existing indemnity fees as necessary to comply with two triggers.5). When the balance in the fund reaches $8 million, the indemnity fees are automatically waived.5). The triggered waiver or reinstatement is effective on the first day of the following assessment year (September 1). A licensee is required to remit the outstanding amount of the waived participation fee that is otherwise owing for the current assessment year.5). BACKGROUND —— FUND —— VALUE OF LOSS.1).6). For a depositor, it may be part of a court order after hearing the matter in a DALS’ receivership. Otherwise, the loss is based on the fair market price paid to producer sellers at a nearby terminal on an incurrence date. For a seller, it may be the sales price agreed to by the parties. If the grain has not yet been priced, the loss is again based on the fair market price paid at the terminal on one of those incurrence dates. An incurrence date is either the cessation of the license of a warehouse operator or grain dealer (by revocations, cancellation, or expiration) or the licensee’s filing of a petition in bankruptcy. BACKGROUND —— FUND —— PAYMENT OF CLAIMS. A claim must meet eligibility requirements, including that it is timely filed, there is evidence of a loss incurred by a claimant, and the claim derives from a covered transaction during the claim period. For a claimant who is a depositor, a covered transaction requires that the grain must have been delivered to a licensed warehouse operator. For a claimant who is a seller, a covered transaction requires that title be transferred within six months of the incurrence date. A covered transaction excludes sale by credit-sale contract. The board must indemnify a claimant (a grain dealer and warehouse operator) percent of the combined losses, if the losses are part of the same covered transaction during the indemnity claim period.6). BILL —— FUND —— INDEMNITY FEES.3A). However, the bill allows the licensee to continue to elect to remit the participation fee on four successive installment dates. The bill provides that each installment date occurs in the month succeeding the last assessment quarter on a date determined by rules adopted by DALS. The bill requires a licensed grain dealer to remit the per-bushel fee on the following four successive installment dates: December 15, March 15, June 15, and September 15.5). The bill provides that grain sold by deferred-pricing contract is considered purchased grain and grain sold by deferred-payment contract is not.3A). BILL —— INDEMNITY FEES —— TRIGGERS. The bill adjusts both triggers waiving or reinstating the two indemnity fees.5). BILL —— FUND —— DOLLAR VALUE OF LOSSES. The bill requires that a loss incurred by a seller who was a party to a credit-sale contract must be segregated, including a deferred-pricing contract and deferred-payment contract. The bill provides special valuation rules for losses incurred by a depositor or seller.S. grain according to standards adopted by the federal grain inspection service of the USDA. DALS may adjust the price of the grain if necessary to better account for its condition when stored or sold. BILL —— INDEMNIFICATION OF REPAYMENT LOSSES (REPAYMENT CLAIMS).6A). The special repayment process allows such a seller to recover the amount of the grain dealer payment that the seller was forced to repay to the grain dealer’s bankruptcy estate. To be timely, a seller must file a repayment claim with DALS not later than days after the repayment loss is finalized by a bankruptcy court. DALS may provide notice of the repayment claim process to a seller who may file a repayment claim. If DALS chooses to provide a notice to the seller, DALS has discretion to determine a reasonable method and manner of providing such notice. The board must determine that a repayment claim is eligible for payment from the indemnity fund, including whether the repayment claim derives from a covered transaction. DALS is required to deliver notice to a seller filing a repayment claim regarding the indemnity board’s determination in the same manner as for an ordinary loss. BILL —— INDEMNIFICATION OF DOLLAR VALUE LOSSES.6). With one exception, the board must indemnify a claimant percent of the combined dollar value losses. The exception applies to a segregated dollar value loss incurred from the sale of grain under a credit-sale contract. The board must indemnify the seller percent of the dollar value loss incurred from the sale of grain under a deferred-pricing contract and percent of the dollar value loss for the sale of grain under a deferred-payment contract. The full indemnity amount paid to a claimant still cannot exceed the existing limit of $300,000. BILL —— ORDER OF INDEMNIFICATION AND INDEMNIFICATION PERIODS. The board must indemnify claims by giving priority to claims that are not segregated (arising from a deferred-pricing contract). If there are not sufficient moneys in the indemnity fund to indemnify all claims, the board may establish one or more eligible claim indemnification periods required to fully indemnify claims that have not been satisfied. BILL —— EMERGENCY RULES. DALS is authorized to adopt rules on an emergency basis necessary to administer the bill’s provisions.4(3)). The bill requires that such emergency rulemaking be “double barreled”. Under that process, when an agency files an emergency rule, it also files the same rule as a notice of intended action that will follow the regular rulemaking process. Normally, a rule cannot be effective prior to days after its filing with the administrative rules coordinator and publication in the Iowa administrative bulletin.5(2)(b)(1)). This provision of the bill takes effect upon enactment. BILL —— ASSESSMENT OF INDEMNITY FEES (CREDIT-SALE CONTRACT). A grain dealer who is a party to a credit-sale contract owing an indemnity fee assessed on grain purchased by credit-sale contract as provided in the bill is imposed on September of the first assessment quarter.